Inflation crisis undermines Asian governments

Inflation crisis undermines Asian governments
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First Published: Sun, Jun 08 2008. 11 30 PM IST
Updated: Sun, Jun 08 2008. 11 30 PM IST
Kuala Lumpur: Spiralling prices for food and fuel have claimed their first political casualty and threaten other Asian governments forced to impose subsidy cuts even as elections loom.
Malaysia’s ruling coalition suffered its worst polls setback in half a century in March, as voters registered their fury over the government’s inability to rein in the rising cost of living.
New fuel price hikes have triggered protests and strikes in Malaysia and India in recent days, and Indonesia has seen demonstrations in several cities.
In India the Congress-led coalition is desperate to tame inflation, which is headed for peaks not seen in a decade, as it braces for a voter backlash in national elections by May 2009. The latest fuel price hike triggered protests in several states, and calls for Prime Minister Manmohan Singh to resign.
“In any country that has elections coming up within the next two years, inflation and how the government wrestles with the problem will be important,” said Robert Broadfoot of the Hong Kong-based Political and Economic Risk Consultancy.
Malaysia was forced to impose a hugely unpopular 41% price hike last week after being faced with a cost of $17 billion (Rs72,760 crore)—one-third of the national budget—to underwrite some of Asia’s cheapest fuel.
Bridget Welsh, a South-East Asian expert from Johns Hopkins University, said even when oppositions cannot offer a viable alternative, inflation is an avenue for a protest vote against flawed governments.
Subsidies and intervention measures cause their own problems, including in Malaysia where suppressed prices of cooking oil produced shortages and panic buying, Broadfoot said.
In Indonesia, President Susilo Bambang Yudhoyono has taken a major political risk by slashing fuel subsidies despite widespread protests.
The Philippines is not scheduled to hold national elections until 2010 presidential polls, but President Gloria Arroyo says she is keeping a “laser focus” on soaring rice prices, which helped inflation reach 9.6% in May.
Modi retained as Bihar deputy chief minister
New Delhi: In a setback to the rebels in the Bihar unit of the Bharatiya Janata Party, Sushil Kumar Modi was retained as the deputy chief minister as well as the leader of the party’s legislative unit.
It is believed 40 of the party’s 55 members of the legislative assembly or MLAs had sought his removal from both posts. But the party said that there was no change in the state leadership, perhaps with an eye to the general elections due early next year. Modi is said to have got 35 out 67 votes of the total MLA and MLCs present in Sunday’s “secret ballot”. Staff Writer & PTI
Bric countries seen growing faster amid global meltdown
St Petersburg, Russia: The Western financial crisis means the fast growing economies of Brazil, Russia, India and China, the so-called Bric nations, will grow their share of the world economy even faster than originally forecast, the founder of the four-nation Bric concept said.
The term Bric was coined by Wall Street bank Goldman Sachs to describe how the four rising economies are likely to rival and overtake many of the West’s leading economies over the next half century.
Jim O’Neill, the Goldman Sachs economist who originated the term in 2003, said the financial crisis that began in US mortgage security markets was allowing the Bric countries to take a bigger share of world gross domestic product (GDP).
“On a relative basis it definitely allows the Brics to develop faster as they are going to take an even bigger share of GDP sooner,” O’Neill said.
“This is a financial crisis of the West and we must not forget that of the world’s six billion people, most of them are not affected by this,” he said. “I was in India four weeks ago and there were no signs of India being affected by all of this.”
O’Neill, head of global economic research at Goldman, said China, India and Russia were actually growing faster than originally predicted by his research.
“Of the four Brics, Russia, China and India have all grown on average 2% more than we suggested,” he said. “It is a hell of a lot so they are now collectively 16% of global GDP, so it is all happening a lot quicker.”
Last month in the Russian city of Yekaterinburg, the four sought to formalize their club at the first stand-alone meeting of Bric foreign ministers. Detractors say optimistic predictions about the Bric economies ignore major hurdles to their development such as future political instability, rampant corruption and decrepit infrastructure.
Economists forecast in the 1950s and 1960s that Brazil would become one of the world’s top economic powers, only for its once-rapid growth to stall dramatically in the debt crisis of the 1980s and to stagnate throughout the 1990s. Guy Faulconbridge/ Reuters
Fuel price hike to hit Punjab,?Haryana?farmers
Chandigarh: The recent diesel price hike is estimated to cost Punjab and Haryana —two states that use generators and pump sets in a big way—at least an additional Rs100 crore by way of fuel usage for the paddy crop.
“Every rupee increase in cost of diesel increases the cost by Rs100 for every hectare of the paddy crop,” Punjab finance minister Manpreet Singh Badal has said. Badal, who got a team of experts to ascertain the impact of increase in diesel prices on paddy, said these figures are merely based on basis of actual diesel consumption by the farmer. “The total input costs would be much greater considering the fact the fertilizer prices and other inputs are also dependent on diesel.”
Punjab has 2.5 million ha under paddy cultivation while Haryana has 1.75 million ha. Bajinder Pal Singh
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First Published: Sun, Jun 08 2008. 11 30 PM IST